Social Investments, Informal Risk Sharing, and Inequality / Attila Ambrus, Arun G. Chandrasekhar, Matt Elliott.

Format:

Book

Author/Creator:

Ambrus, Attila.

Contributor:

National Bureau of Economic Research.

Chandrasekhar, Arun G.

Elliott, Matt.

Series:

Working Paper Series (National Bureau of Economic Research) no. w20669.

NBER working paper series no. w20669

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2014.

Summary:

This paper studies costly network formation in the context of risk sharing. Neighboring agents negotiate agreements as in Stole and Zwiebel (1996), which results in the social surplus being allocated according to the Myerson value. We uncover two types of inefficiency: overinvestment in social relationships within group (e.g., caste, ethnicity), but underinvestment across group. We find a novel tradeoff between efficiency and equality. Both within and across groups, inefficiencies are minimized by increasing social inequality, which results in financial inequality and increasing the centrality of the most central agents. Evidence from 75 Indian village networks is congruent with our model.

Notes:

Print version record

November 2014.